Oil Falls on US Demand Worries, Interest Rate Fears

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant

Oil prices fell on Thursday after a larger-than-expected build in US crude stockpiles stoked worries about slow demand, while signs that US interest rates could remain elevated added to pressure.
Brent crude futures for April fell 43 cents, or 0.5%, to $83.25 a barrel by 0830 GMT, after rising 3 cents in the previous session. The April contract expires on Thursday and the more active May contract was down 33 cents at $81.82.
US West Texas Intermediate crude futures were down 26 cents, or 0.3%, to $78.28 a barrel.
Brent is set to end the month up at nearly 2%, its second monthly gain, while WTI is also set to rise for a second month, gaining about 3% in February.
US crude oil stockpiles rose while gasoline and distillate inventories fell last week as refiners ran at below seasonal lows due to planned and unplanned outages, the Energy Information Administration said on Wednesday.
Crude inventories rose for the fifth consecutive week, increasing by 4.2 million barrels to 447.2 million barrels in the week ended Feb. 23, the EIA said, compared with analysts' expectations in a Reuters poll for a 2.7 million-barrel rise.
"Large stockpiles heightened investors' worries over a slow economy and reduced oil demand in the US," said Satoru Yoshida, a commodity analyst with Rakuten Securities.
"The anticipation of delayed US rate cuts also weighed on the market sentiment as it could undermine oil demand," he said.
High borrowing costs typically reduce economic growth and oil demand.
Traders have already dialed back expectations for US interest rate cuts after a slew of strong data, including hot consumer price index and producer price index readings. They expect an easing cycle to kick off in June, compared with the start of 2024 when bets were in March.
Market participants are now waiting for the US personal consumption expenditures price index, the Federal Reserve's preferred measure of inflation, for more trading cues.
The index, to be released on Thursday, is expected to show prices ticked up 0.3% on a monthly basis in January.
The market also eyed the possible extension of voluntary oil output cuts from OPEC+, which has limited price declines for now.
"With the demand outlook remaining uncertain, we think OPEC will extend the current supply agreement to the end of the second quarter," ANZ analysts Daniel Hynes and Soni Kumari said in a client note.
The price outlook remains unchanged, the analysts added, projecting 2024 annual average prices at $86 a barrel for Brent and $81 a barrel for WTI.
The conflict in the Middle East is also expected to keep a floor under oil prices, Rakuten's Yoshida said.
Both Israel and Hamas have played down the prospects for a truce in their war in Gaza and Qatari mediators have said the most contentious issues are still unresolved.